J.D. Power cozy with winners

David Lazarus

Published
4:00 am PDT, Sunday, July 24, 2005

Harold McGraw III, right, chairman, president and chief executive officer of The McGraw-Hill Companies (NYSE: MHP) and J.D. Power III, founder of J.D. Power and Associates, sign an agreement Monday, March 7, 2005 at J.D. Power headquarters in Westlake Village, Calif., announcing the sale of J.D. Power to the New York-based global information company. McGraw said the acquisition will help accelerate J.D. Power's expansion into new markets and Power will remain actively involved in the strategic direction of the operation. Photo/McGraw Hill, Susan Goldman, handout. less

Harold McGraw III, right, chairman, president and chief executive officer of The McGraw-Hill Companies (NYSE: MHP) and J.D. Power III, founder of J.D. Power and Associates, sign an agreement Monday, March 7, ... more

Photo: SUSAN GOLDMAN

Photo: SUSAN GOLDMAN

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Harold McGraw III, right, chairman, president and chief executive officer of The McGraw-Hill Companies (NYSE: MHP) and J.D. Power III, founder of J.D. Power and Associates, sign an agreement Monday, March 7, 2005 at J.D. Power headquarters in Westlake Village, Calif., announcing the sale of J.D. Power to the New York-based global information company. McGraw said the acquisition will help accelerate J.D. Power's expansion into new markets and Power will remain actively involved in the strategic direction of the operation. Photo/McGraw Hill, Susan Goldman, handout. less

Harold McGraw III, right, chairman, president and chief executive officer of The McGraw-Hill Companies (NYSE: MHP) and J.D. Power III, founder of J.D. Power and Associates, sign an agreement Monday, March 7, ... more

Photo: SUSAN GOLDMAN

J.D. Power cozy with winners

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Take a look at almost any ad for cars or cell phones these days, and you'll see one or more awards from J.D. Power and Associates suggesting a track record of quality and reliability.

Some promotions fairly drip with J.D. Power honors. General Motors has been running a full-page ad in newspapers across the country depicting no fewer than 16 J.D. Power awards and not a single car or truck.

And that's just fine, financially speaking, with J.D. Power.

For the uninitiated, J.D. Power is a Southern California market researcher that studies customer satisfaction in a wide variety of industries, from cars and cell phones to health care and utilities.

The company funds and performs its own research, then makes its extensive data available -- for a price -- to the industries covered.

Those industries in turn may use J.D. Power's findings in their marketing campaigns as independent proof that consumers can rely on their products and services.

But here are a couple of things most people might not know:

The companies evaluated by J.D. Power in fact pay the firm to use its name in their ads, and a hefty amount of cash is said to be changing hands.

Also, companies honored by J.D. Power with top rankings routinely pay it additional sums for extra copies of its foot-high, crystal trophies.

Jamey Power, the firm's executive vice president and son of founder James David Power, told me he's not worried about a perceived conflict arising from J.D. Power & Associates taking money from the companies it judges.

"We have walls set up in our organization that separate the different business divisions from these issues," he said.

But consumer advocates say it's difficult to maintain the public's trust if you enjoy a financial relationship with the firms you claim to be independently reviewing.

"Even if the whole thing's on the up and up, there's at the very least an appearance of impropriety," said Ken McEldowney, executive director of Consumer Action in San Francisco.

"Some consumers might wonder if J.D. Power gives awards only to companies that can pay thousands of dollars in licensing fees."

For this reason, McEldowney said his organization forbids companies to use Consumers Action's name in marketing materials that reference the group's studies of telephone and credit card pricing.

Consumer Reports, the granddaddy of watchdog publications, also won't let companies use its name in marketing materials.

"We feel this would create an implication among consumers that we have a relationship with the company," said Charles Daviet, Consumer Reports' director of survey research.

Mike Greywitt, a J.D. Power spokesman, responded that there's nothing inappropriate about licensing its name for use by others.

"It's no different from any company that licenses its name for use on a product," he said. "Disney, for example, licenses its name. So does Coca-Cola."

The difference, of course, is that neither Disney nor Coke presents itself to consumers as an ostensibly neutral arbiter of other companies' goods and services. J.D. Power does.

The firm, which was acquired in March for an undisclosed price by publishing giant McGraw-Hill, is intensely tight-lipped about the fees it charges other companies.

"That's proprietary," Greywitt insisted.

But it's an open secret in the business world that annual licensing fees in fact cost a pretty penny, running in some cases (or so I hear) more than the price of a top-of-the-line Mercedes-Benz.

Brandchannel.com, a marketing-related Web site, tried (and failed) in a report last year to determine the scope of J.D. Power's licensing program. It said only that licensing "generates huge fees."

Another site, TheCarConnection.com, said in a report prior to J.D. Power's acquisition that the firm's annual licensing fee is believed "to be around $100,000."

Jamey Power didn't dispute that the firm's licensing can be pricey.

"We put a value on the licenses because you want to be respected," he said. "If you're not respecting yourself, it devolves into not receiving any in return."

Greywitt put it this way: "You pay for value. When you want a luxury car, you pay for the value of the car."

As for J.D. Power reaping additional revenue by selling trophies to award recipients, Greywitt said this is a perfectly ordinary business practice.